Cigarette packets are being fitted with microchips to stub out a £3.5BILLION bootlegging scam.

The tags, invisible to the naked eye, mean customs officials armed with hand-held electronic scanners can check whether cigarettes are fakes or genuine - and whether or not duty has been paid.

The system - further details of which are being kept top secret - is designed to smoke out tobacco smugglers and counterfeiters. Last year two billion bogus fags were sold in Britain, nearly three per cent of the 67.5billion total.

The illegal trade is blamed for £3.5billion in lost tax revenues per year, in addition to £800million of lost sales for the tobacco industry.

Crooks, most based in China, print health warnings on counterfeit packs in Polish to fool Brits into thinking they are buying smuggled tobacco rather than potentially harmful fakes. Each lorry load of fake cigarettes nets the bootleggers around £1million profit.

The Tobacco Manufacturers' Association is working with the Government on the tags. A spokesman said: "We are fully behind it. The scheme provides an instant authentication method. The aim of the scheme is to put a barrier between the retailer and the counterfeits."